Like generals fighting the last war, business executives unconsciously seek to win the last paradigm shift. In the computer industry these paradigm shifts have been formidable, frequent, and ongoing. IBM was once the well-known king of computing, operating in an era in which hardware was expensive and labor was cheap, so IBM sold hardware and gave away software for free. The software, written on punch cards, was time-consuming and laborious to create. It was simply impossible to create anything like today's complicated operating systems or immersive video games in that environment. Then Intel and Apple and cheap home computers came along and the center of value shifted from hardware to software. It was suddenly easy to buy a relatively powerful computer but difficult to obtain useful software. A huge industry emerged from virtually nowhere to supply this emergent need, including such companies as Microsoft, Oracle, Autodesk, Ashton-Tate, etc. Billions upon billions of new value was added to the economy, as IBM, unable to keep up with the new thinking, slowly faded into the background.
Beyond software lies data. Just as software needs hardware to run on, data needs software to be presented on. Much data has traditionally been unavailable, locked up in private collections or physically difficult to access libraries, even if those libraries were ostensibly public. Or it simply wasn't digital yet. By "data" here I don't mean stacks of sales records, as in the old IBM days, but rather the totality of all content that people wish to share and present to others. "Content" includes word documents, KML-generated maps, mp3 songs, and YouTube videos. The introduction of the Internet has thoroughly transformed the relationship of data to software, just as the introduction of the integrated circuit transformed the relationship of software to hardware, so that software has now become very cheap or free, and it is the content itself, the "data", which has assumed the position of maximal value to consumers, displacing software exactly as software in an earlier era displaced hardware. Google seems to have grasped this fundamental point while Microsoft seems to have missed it. This may be what Paul Graham means when he says "Microsoft is dead"—it's dead in the same way IBM is dead, simply stuck in the last paradigm, unable to come to grips with the new world in which it lives, increasingly irrelevant.
A single worldwide Internet does not require multiple points of access, multiple on-ramps. Users dislike having to go to different places to find different things. It is much more convenient to have a single place at which to start in order to find everything, and Google is well down the path toward creating this universal portal. What is much more convenient usually wins in the long run. Google is not a data company per se—the world already provides plenty of those; in fact, we're all creating data all the time all day long—rather, Google seeks to be the world's great data-organizer, the single aggregator of all the exabytes of data being continually produced yearly by humanity. It is only in this light that its acquisition of YouTube and its acquisition of Blogger (among many others) makes perfect sense. Bloggers are providing data to Google for free, in much the same way that people searching on Google are spending their days entering data into Google's databases, for free, day in and day out. The most expensive part of the whole computing enterprise continues to be data entry, and Google has discovered how to get the world to enter data for free and love it in the process. Likewise, Gmail constitutes yet another method by which free data is created and entered into Google's databases voluntarily by the world. Ask yourself how many times a day you enter free data for Google into Google's omnivorous and secretive database.
Is there room in this town for two or more search engines, when one of them offers a smorgasbord of choices and connections, everything one could want from music to movies to books at one's literal fingertips, while the others are broken and fragmentary and only partially successful at best? It seems unlikely. It is often said that Google is an advertising company, but this again misses the point entirely. Advertising is merely the first mechanism by which Google has chosen to monetize the immense value that it is creating by becoming the world's single portal to the world's data. There will be others. Google does know exactly what you have been searching for and that knowledge has enormous value, both commercially to Google and to governments, both foreign and domestic. It will only be a matter of time until that tremendous value is unlocked.